Weekend Reading: Daniel Davies: One-Minute MBA: "(1) Avoiding Projects Pursued By Morons 101http://blog.danieldavies.com/2004_05_23_d-squareddigest_archive.html: The secret to every analysis I've ever done... has been, more or less, my expensive business school education.... Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class.... (We also learned in accounting class that the difference between 'making a definite single false claim with provable intent to deceive' and 'creating a very false impression and allowing it to remain without correcting it' is not one that you should rely upon to keep you out of jail. Even if your motives are noble.)...

...Fibbers' Forecasts Are Worthless. Case after miserable case after bloody case we went through, I tell you, all of which had this moral. Not only that people who want a project will tend to make innacurate projections about the possible outcomes of that project, but about the futility of attempts to "shade" downward a fundamentally dishonest set of predictions....

The Vital Importance of Audit. Emphasised over and over again. Brealey and Myers has a section on this, in which they remind callow students that like backing-up one's computer files, this is a lesson that everyone seems to have to learn the hard way. Basically, it's been shown time and again and again; companies which do not audit completed projects in order to see how accurate the original projections were, tend to get exactly the forecasts and projects that they deserve....

Next week, perhaps, a few reflections on why it is that people don't support the neoconservative project to bring democracy to the Middle East (a trailer for those who can't wait; the title is going to be something like "If You Tell Lies A Lot, You Tend To Get A Reputation As A Liar"). Mind how you go.

...Since game theory in general provides the analyst with so many opportunities to twist himself repeatedly up his own arse like a berserk Klein bottle, if a given real-world course of action appears to have nothing going for it other than a game-theoretic or strategic justification, it’s almost certainly a bad idea. Thus it is with that bastard child of deterrence, “credibility”....

It is certainly true that one of the benefits of doing something stupid is that it saves you from having to spend money on maintaining your reputation as an idiot. However, is the reputation of an idiot really worth having?

It turns out that it can be proved by theorem that the answer is no.

If the game of being a belligerent idiot with no sensible regard for one’s own welfare was worth the candle, in the sense of conferring benefits which outweighed the cost of gaining it, then everyone would want to get that reputation... everyone would know that simply acting like an idiot didn’t mean that you were one... [and] it would be impossible to establish a reputation as an idiot.... A signal has to be a costly signal to be credible; like membership of the Modern Languages Association, a reputation in deterrence theory is something that is worth having, but not worth getting...

...He was in fact for it, and if that bit about “the sooner we get rid of it, the better” fooled you, then I’ve got a second hand bridge k% monetary policy rule for you to buy.

They’re always hacks, Brad. Always. Yes, even Milton Friedman. The more independent-minded ones will occasionally come up with a liberalish or fair-minded idea or two, but this is purely for display, not for ever doing anything about if to do so would run the risk of a higher rate of capital gains tax. The ideological core of Chicago-style libertarianism has two planks: (a) Vote Republican. (b) That’s it.

Why are American liberals so damnably obsessed with extending intellectual charity to right wing hacks which is never reciprocated?...

I wouldn’t mind, but it’s clearly not intellectual honesty that makes American liberals act pretend that Milton Friedman wasn’t a party line Republican hack (which he was; he was also an excellent economist, which is why he won the Nobel Prize for Economics, not the Nobel Prize for Making A Sincere and Productive Contribution To The National Political Debate, which he would not have won if there was one). If it was just pure scholarly decency that made Yank liberals so keen on recognising the good qualities even in their political opponents, then you’d expect that they would also be quick to recognise the good qualities, analytical insights and so on in prominent Communist intellectuals. And do they? Do they fuck. I won’t link to the Paul Sweezy obituary, because I think everyone involved agrees that this wasn’t Brad’s finest hour, but it certainly wasn’t atypical....

...such as carbon tax, an effective stimulus bill, half his nominations, most of the financial sector reforms and so forth, all to concentrate on passing health care. And he only got about half of that–the version passed was something he’d specifically camapigned against as not being anything like radical enough.... Lesser-evilism... is very vulnerable to strategic behaviour...

...The general skill of management has two basic components–administration and leadership….

The first is the ability to keep track of and prioritise detail…. People through the ages have come up with a number of technologies to extend the human ability to administrate, such as alphabetical filing systems, double-entry accounts, activity reports and so on; the majority of the structures in Fred Brooks’ book fall into this category too. The majority of the skill of organisation is having the mastery of these tools and the self-discipline to use them consistently. The first is what they teach you in business schools; the second sounds more like an innate ability, but I would guess that it too can be taught….

The second is a species of emotional intelligence; some people are better applied psychologists than others….

Of course, the fact that there’s a general skill of management doesn’t mean that everything can be managed, any more than the fact that there’s a general attribute of strength means that everything can be lifted…. Nor does it necessarily mean that there is a caste of individuals who can be dropped into managerial roles in any organisation and immediately start managing successfully…. On the other hand, it does suggest that if you have a management problem, there is some sense in asking someone who’s really good at management if they have some advice about it…. What it does mean is that the fundamental attribution error is not always an error in this context…. There really is a right way and a wrong way to run a warehouse.

...was JK Galbraith’s aphorism that the quest of conservative thought throughout the ages has been “the search for a higher moral justification for selfishness”.

Some rightwingers are not hypocrites because they admit that their basic moral principle is “what I have, I keep”.

Some rightwingers are hypocrites because they pretend that “what I have, I keep” is always and everywhere the best way to express a general unparticularised love for all sentient things.

Then there are the tricky cases where the rightwingers happen to be on the right side because we haven’t yet discovered a better form of social organisation than private property for solving several important classes of optimisation problems…

…I offer this observation: If it is not the case “that the rich are spiteful–that they enjoy the envy of the poor”, then why is the word “exclusive” so popular in the marketing material for hotels, nightclubs, holiday resorts and residential property developments. “Exclusive” is probably these days an advertising man’s synonym for “nice”, but it also has a clear and specific literal meaning. It means that the hotel, nightclub, resort etc is providing a bundled service; partly, the provision of a normal hotel or nightclub, and partly the service of excluding a segment of the population from that service. One pays extra to go to a health club whose swimming pool is not polluted by the greasy, hairy polloi.

The reason that this service is valuable is that those who consume it get utility from a) dividing society into two groups, rich and poor, b) creating institutions which physically and socially segregate these two groups and c) them being in the “rich” group. Nobody would apply for membership of Bouji’s or the Bucks if it was just a matter of waiting your turn and paying your fee. This would completely defeat the point of the exercise and destroy the value proposition. The point is that in order to attract a better class of customer, you have to keep the riff-raff out. Basil Fawlty understood this; why doesn’t the blogosphere?

...So I’m disturbed to see that people who are making roughly infinity more money than me out of the practice aren’t sticking to the unwritten rules of the game. Viz Nathan Mhyrvold:

Once people with a strong political or ideological bent latch onto an issue, it becomes hard to have a reasonable discussion; once you’re in a political mode, the focus in the discussion changes. Everything becomes an attempt to protect territory. Evidence and logic becomes secondary, used when advantageous and discarded when expedient. What should be a rational debate becomes a personal and venal brawl…

The whole idea of contrarianism is that you’re “attacking the conventional wisdom”, you’re “telling people that their most cherished beliefs are wrong”, you’re “turning the world upside down”.

In other words, you’re setting out to annoy people.

Now opinions may differ on whether this is a laudable thing to do–I think it’s fantastic–but if annoying people is what you’re trying to do, then you can hardly complain when annoying people is what you actually do…. If Superfreakonomics wanted a calm and rational debate, this chapter would have been called something like: “Geoengineering: Issues in Relative Cost Estimation of SO2 Shielding”, and the book would have sold about five copies.

Viz also, Stephen Dubner:

They have given the impression that we are global-warming deniers of the worst sort, and that our analysis of the issue is ideological and unscientific. Most gravely, we stand accused of misrepresenting the views of one of the most respected climate scientists on the scene, whom we interviewed extensively. If everything they said was actually true, it would indeed be a damning indictment. But it’s not….

The other point of contrarianism is… you assemble… points which are individually uncontroversial… and put them together to support a conclusion which is surprising and counterintuitive…. [T]he aim of the thing is the overall impression you give…. [T]he entire point is to make a defensible argument which strongly resembles a controversial one.

So… you don’t get to complain that people have “misinterpreted” your piece by taking you to be saying exactly what you carefully constructed the argument to look like you were saying. Fair enough, you might not care to defend the controversial point it looked like you were making, but a degree of diffidence is appropriate here, because the confusion is entirely and intentionally your fault:

(That is the “global cooling” in our subtitle. If someone interprets our brief mention of the global-cooling scare of the 1970’s as an assertion of “a scientific consensus that the planet was cooling,” that feels like a willful misreading.)

No it doesn’t; it feels like someone read the first two pages for the plain meaning of the words and didn’t spot that you were actually playing a little crossword-puzzle game where the answer was “consensus”. In general, whatever “global cooling” meant, it was put on the cover in full knowledge of the impression it would give to a normal reader so once more, it is not legitimate to complain that this phrase was interpreted in the way in which it was intended to be interpreted.

In general, contrarians ought to have thick skins, because their entire raison d’etre is the giving of intellectual offence to others. So don’t whine, for heaven’s sake. Own your bulls–---

...I occasionally pitched an idea to publishers of management books. It was going to be called “Great Ideas From Failed Companies”, the idea being that when you have the perspective of the entire history of a corporate story, you’re probably going to get a more honest appraisal of its strengths and weaknesses, and that although companies like Enron, Northern Rock and Atari clearly had major problems, they quite likely also had some good points too, or how did they ever get so big in the first place?

Obviously, carrying out a similar exercise on failed social and political systems is a bit of a minefield, since most social and political systems which have been tried and failed have tended to take down a hell of a lot of innocent lives with them as they did so. I don’t think anyone but the most studiedly mindless (and tasteless) contrarian would bother to ask the question “but what did the Nazis get right?” at any great length[1]. But there’s always a temptation to do so with Soviet communism.[2] It killed quite a lot more people than Nazism but (for the most part, and after the 1920s) in a less obviously criminally insane way, and as a system it does have the characteristic that lots of people and countries at various times did want to have a go at it for themselves, more or less of their own free will.

Which is why one of the big draws of “Red Plenty” is the promise to take us, as the subtitle of my edition reads, “Inside the Fifties Soviet Dream”, or even to help us learn “lessons from the Soviet dream“.

But this cheque never really gets cashed by the book.

“Red Plenty” isn’t, or at least not directly, a book about the Fifties, Gargarin and the years of 7% growth. Only two of its chapters are set before Sputnik; one is a vignette of the career of Kantorovich as he was starting the work on linear programming, and the other is set out in a recently famine-stricken rural area of the sort that never really had the boom in the first place. By the time the action gets going in Red Plenty, the dream is basically over. Some of the characters seem to realize this and some don’t; as always the economists are the most romantic and least realistic of characters, persisting way up into the 1960s with the dream that the underlying model is basically sound, and a few technical changes will make it possible to achieve the vision of plenty.

Elsewhere across the system, people cheat and swindle, do what they must do to survive, and often fail and get crushed by the system, in a terribly realistic and human way which is all the more elegiac because we know how it all turned out. I’m fascinated (as in the Greece choose-your-own-adventure post we ran a while back) with this approach to history–in many ways the novelistic method gives a much truer picture of what it must have been like than a simple recitation of facts and acts. Nearly all of Spufford’s characters, even most of the baddies, are not acting out of sheer cackling evil; they’re trying to find a way through a set of constraints and incentives put in front of them, often making decisions that are morally shitehouse and obviously so, but always explicable as decisions that you can see a normal person making.

The massacre at Novocherkassk, for example, appears in a normal history book as a senseless atrocity. Which it was, of course, but Red Plenty helps you think your way into it and it becomes an at least slightly comprehensible senseless atrocity (the very long reports of inquiries, such as those into Bloody Sunday and the Stockwell shooting also have this characteristic). And then of course, there are one or two characters who are just pure and simple motiveless bastards. Because they exist too.

It makes me wonder what a sort of prequel to Red Plenty which did actually deal with the go-go-Gargarin years would be like. A lot of the dysfunctional behavior described in the Soviet system of the Khrushchev years (particularly the gaming of targets and the wheeling and dealing between factory managers for spare parts) would have totally different mood music if we knew that it was leading up to the triumphs of industrialization, saving the world from Hitler and the Space Race, just as a lot of the behavior in “The Right Stuff” and “Patton” is actually pretty unforgiveable when you consider it in isolation from the overall project.

But I don’t think that such a book would actually be an honest work.

As I hinted above, the novelistic first-person-shooter approach to history is so potentially powerful that you have to be careful about the sort of character and system you’re humanizing, and the sad truth of Soviet communism is that the only honest way to write about the “Fifties dream” is in a way which makes it clear it was a great big lie, and that the only lesson from that system is not to do that again.

Because, as the book makes clear, there was no bloody great economic miracle. The Soviet economy grew because of the vast increase in resources thrown at it; there was an enormous increase in investment, much of it highly suspect in its productivity. There never could have been a golden future of plenitude and consumption just the other side of the hill, because the economic growth and the repression of domestic consumption were the same thing. It was all a con game.

And in my view, the original mistake made was the one which is also covered wonderfully in the chapter on the visit to the World’s Fair–the decision to adopt America as the competition. It just makes no sense for Russia in 1950 to be thinking of the USA as its benchmark for performance. It’s like a small town football club deciding that they’re going to regard Manchester United City as their rivals. If Russia had been judging the improvements in output and living standards by reference to Spain, or Ireland, there might have been more sensible and realistic decisions made. But comparing to the USA was immediately setting an impossible goal to achieve. And comparing against the USA also meant that the Soviets had to be unduly wedded to having their own economic system and tactics–after all, if you started using market prices, you would end up with similar allocations of resources to those used by the USA, and given the massive difference in initial endowments, this would have written defeat into the numbers. In order to have a nonzero chance of overtaking the USA, the USSR had to use different tactics, and this fact was a major psychological obstacle to ever realising that those tactics were fundamentally–even mathematically–mistaken.

So although I like the idea, I don’t think that there are any really great ideas to be learned from the Soviet system, and “Red Plenty” is basically correct in finding the whole thing to be similar to one of those rather depressing Russian fairy tales in which the moral is “try not to be an idiot all your life”. A better world is, and was, possible–but this wasn’t it.

[1] At short length, the answer is “monetary policy”. The rather embarrassing introduction to the first German-language edition of the General Theory is quite thoroughgoing in its endorsement of Hitler and Schacht’s adoption of broadly Keynesian policies. So now you know.

[2] The exercise is probably best carried out by someone who, like Francis Spufford, has never been a Communist themselves. As Mark Steel notes in his autobiography “Reasons to be Cheerful”, on the subject of old Stalinists constantly finding themselves post-1989 in conversations where they ended up backsliding into wondering whether there weren’t a few progressive elements, Communism is like smoking in this way, you’ve really just got to give it up cold turkey.

A Japanese person who reads the Economist every week to find out about the USA and Europe, ignoring the Asian coverage.

An American who reads it to keep up with the overseas news, although of course the US coverage is a bit crazy.

Numerous Europeans who read it because the American coverage is great, but you have to ignore every word they write about Europe.

Personally, I used to read it a very long time ago, while ignoring the awful c—-- they wrote about Britain and about economics…

(11) You Can’t Have a Modern Industrial Economy If You Have to Stage a Wife-Swapping Party Everytime You Want To Buy A Blanket…: “Too Big To Fail: The First 5000 Years…

…It’s also notable that actually over the years, debt (by which I mean, the commercial and mercantile kind of debt) has worked noticeably better than most of the alternatives. The dzamalag ceremonies described in the book… certainly have some attractive qualities, but although Graeber wins the battle against the “Myth of Barter” here I think he loses the war–really, although the discussion of socially embedded exchange is incredibly interesting and illuminating, I think anyone who reads the passage above is going to end up sympathising with the people in the economics department who say that you really can’t organise a modern industrial society on the basis of organising a wife-swapping party every time you want to buy a blanket.

Perhaps the fact from the book that will end up resisting the longest against the onslaughts of late nights and Scotch whisky on my ability to recall, is that more or less every urban society in the world has ended up inventing an equivalent phrase to “Please”, and “Thank you”, terms which have the social function of asserting between parties to a commercial transaction that the transaction itself does not embed them in any deeper social relation….

The debt contract is basically a tool of industrial organisation that escaped from the laboratory and ran wild. But I think [Graeber] understimates the extent to which there have always been domesticating influences on the concept, and the extent to which the debt relation has always been, correctly, the subject of revision and reappraisal, with the basic underlying question being that of economics rather than anthropology–“How do we best organise the decision making process with regard to production, consumption, and exchange?”...

...my modelling approach: 1. A bank is a box, with “BANK” written on it. 2. A central bank is a box with a pitched roof and lines on the front representing the fascia of the Bank of England. 3. The household sector is a stick man. 4. The industrial sector is a box with a sawtooth roof. 5. Long term savings are a stick figure with a top hat. With these basic concepts, plus sufficient scribbled arrows, more or less any problem in monetary economics can be solved, up to the level of accuracy of any other model. You can even do international monetary economics by drawing circles round one monetary system and scribbling somewhat larger arrows in and out of the circle.

Update!: Lots and lots of consensus building on this one and I may yet win that Nobel Prize after all. Two big points of controversy-1) does the box representing a bank really need "BANK" written on it? and 2) shouldn't the industrial sector also have a chimney? I think that's enough of a debate to keep the journal publishers in business.

Update!: Brad DeLong shows us how it's done. Note that in this version of the model, bonds are a perfect substitute for money, hence the absence of a stick figure with a top hat.

Update: A more substantial objection in BdeL comments-we haven't got a government sector or fiscal policy in this model. I tend to draw the government as a big bag of money, but frankly this isn't satisfactory as it is tends to result in people pointing and saying "what's that? it looks like a balloon with a pound sign on it". If anyone has a bright graduate student and some crayons, I think this could make a good dissertation topic.

...I think that actually, there probably is “a general skill called management which works in any and all domains”, and, just to raise the tariff and secure gold medal position for myself in the Steven Landsburg Memorial Mindless Contrariolympiad, I’ll also defend the proposition that this skill is pretty closely related to what they teach on MBA courses. But first a couple of remarks on Blackburn’s own “Myth of Management“.

In his very definition, Blackburn pretty much gives it away; he says that “[the myth of management] claims that people can be managed like warehouses and airports”. What does this even mean? How do you manage a warehouse or an airport if it’s impossible to manage people? If he had said “like machines” or even “like factories”, then it might have been comprehensible, but a warehouse which doesn’t have any people working in it is just a shed full of stuff and doesn’t require any management because no deliveries or shipments are being made. And an airport without people is just a warehouse for planes. Warehousing and transport are two very labour-intensive industries.

There are two possibilities here. One is merely that Blackburn is a snob–that writing as a professor of philosophy in the THES, he felt entitled to assume his audience would know that “people” meant “middle class people”, and would agree with the implicit assertion that “people” of this sort were capable of independent thought and could not be tied down, man, unlike the meat robots who packed their books for Amazon or swiped their tickets at Heathrow.

But to assume this would be wildly uncharitable.

The other, and I think more likely, explanation, is that Blackburn has no idea whatsoever about what managing a warehouse or an airport would entail, and no real interest in finding out.

There is a clear analogy here to CP Snow’s famous point about “Two Cultures”;

A good many times I have been present at gatherings of people who, by the standards of the traditional culture, are thought highly educated and who have with considerable gusto been expressing their incredulity of scientists. Once or twice I have been provoked and have asked the company how many of them could describe the Second Law of Thermodynamics. The response was cold: it was also negative. Yet I was asking something which is the scientific equivalent of: Have you read a work of Shakespeare’s?

I now believe that if I had asked an even simpler question—such as, What do you mean by mass, or acceleration, which is the scientific equivalent of saying, Can you read?—not more than one in ten of the highly educated would have felt that I was speaking the same language. So the great edifice of modern physics goes up, and the majority of the cleverest people in the western world have about as much insight into it as their neolithic ancestors would have had...

What I mean, of course, is that if a middle manager were to mention over the dinner table that one of his proudest boasts was that he had never engaged in abstract thought in the last twenty years, had consistently managed to avoid doing so throughout his career, and that indeed whenever he was asked to provide an informed opinion on a general or abstract subject, he typically did it intentionally badly in order to make sure he was never asked again, then we would presumably agree that we were dealing with an unusually awful species of pig-ignorant chucklehead.

And yet of course, for both of CP Snow’s intellectual cultures, the parallel view of administration and management is so commonplace as to be a cliche. The abhorrence of academics of management is notorious (the abominable fashion in which so many academic institutions are actually managed even more so). Conversely, the practical men of engineering have developed an entire culture of their own based round the assumption that everything in the world is done by small groups of engineers who spontaneously organise themselves into work units, with occasional interference and distraction caused by “marketroids” who perform no function at all. Very rare indeed is a figure like Fred Brooks who actually applies scientific principles to the analysis of the organisation of computer programmers, and when he does arise, he’s honoured but largely ignored; real engineers write code, they don’t do admin.

>This of course has fairly severe real-world consequences. As anyone who followed the link to my comment in the first paragraph will know, the kernel of my argument for the existence of a general skill of management is that it is pretty obvious that there is a general deficit or “negative skill” of mismanagement, which equally obviously appears to work in roughly the same way in a variety of fields, and that therefore an opening stab at a definition of the general skill of management would be that it’s the absence of this deficit...

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Daniel Davies: One-Minute MBA: Weekend Reading

Weekend Reading: Daniel Davies: One-Minute MBA: "(1) Avoiding Projects Pursued By Morons 101http://blog.danieldavies.com/2004_05_23_d-squareddigest_archive.html: The secret to every analysis I've ever done... has been, more or less, my expensive business school education.... Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class.... (We also learned in accounting class that the difference between 'making a definite single false claim with provable intent to deceive' and 'creating a very false impression and allowing it to remain without correcting it' is not one that you should rely upon to keep you out of jail. Even if your motives are noble.)...